Even if they go mostly unnoticed, industrial businesses are the backbone of our country. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 18.2% for the sector - higher than the S&P 500’s 13% return.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. Taking that into account, here is one resilient industrials stock at the top of our wish list and two we’re steering clear of.
Two Industrials Stocks to Sell:
Ford (F)
Market Cap: $53.03 billion
Established to make automobiles accessible to a broader segment of the population, Ford (NYSE: F) designs, manufactures, and sells a variety of automobiles, trucks, and electric vehicles.
Why Do We Pass on F?
- Flat vehicles sold over the past two years indicate demand is soft and that the company may need to revise its strategy
- Earnings per share fell by 22.5% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- High net-debt-to-EBITDA ratio of 9× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Ford’s stock price of $13.32 implies a valuation ratio of 11.7x forward P/E. Check out our free in-depth research report to learn more about why F doesn’t pass our bar.
NN (NNBR)
Market Cap: $58.73 million
Formerly known as Nuturn, NN (NASDAQ: NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Why Do We Think NNBR Will Underperform?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 7.4% annually over the last two years
- Performance over the past five years was negatively impacted by new share issuances as its earnings per share fell by 18.8% annually while its revenue was flat
- Negative free cash flow raises questions about the return timeline for its investments
At $1.18 per share, NN trades at 27.7x forward P/E. Dive into our free research report to see why there are better opportunities than NNBR.
One Industrials Stock to Watch:
Waste Connections (WCN)
Market Cap: $44.96 billion
Operating a network of municipal solid waste landfills in the U.S. and Canada, Waste Connections (NYSE: WCN) is North America's third-largest waste management company providing collection, disposal, and recycling services.
Why Does WCN Catch Our Eye?
- Annual revenue growth of 11.6% over the last five years was superb and indicates its market share increased during this cycle
- Offerings are mission-critical for businesses and lead to a top-tier gross margin of 41.1%
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Waste Connections is trading at $175.50 per share, or 31.9x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.
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